Greenbow Pty Ltd v Rossi Recycling Pty Ltd (No 2)
[2022] VCC 1729
•13 October 2022
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
COMPLEX CASES LIST (FORMER EXPEDITED CASES LIST)
Case No. CI-19-05953
| Greenbow Pty Ltd | Plaintiff |
| v | |
| Rossi Recycling Pty Ltd | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | None, on the papers (costs submissions dated 2 and 16 September 2022) | |
DATE OF RULING: | 13 October 2022 | |
CASE MAY BE CITED AS: | Greenbow Pty Ltd v Rossi Recycling Pty Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 1729 | |
RULING ON COSTS
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | D Farrands KC with R Kruse | Walter Grant Legal |
| For the Defendant | J D S Barber | Dunemann Sutherland |
HIS HONOUR:
Background and outcome
1On 16 August 2022, I delivered my reason in this proceeding (“August Reasons”).[1] Terms used in this Ruling have the meanings given in the August Reasons. In the August Reasons, I held that the Greenbow UPE was permanently released by Greenbow in about December 2014 and that it has not been validly restored or otherwise validly acknowledged by Rossi Recycling as owing to Greenbow since that time. I therefore gave judgment for the defendant Rossi Recycling and stated that:
“I will also order that the Greenbow pay the defendant’s costs of and incidental to the proceeding on the standard basis, in default of agreement, unless either party can establish a basis for seeking a different order on costs. I will invite the parties to prepare draft orders to give effect to these reasons, and any further issue as to costs will be determined on the papers.”
[1] Greenbow Pty Ltd v Rossi Recycling Pty Ltd [2022] VCC 1298
2The parties have since provided short written submissions on costs – from Rossi Recycling dated 2 September 2022 and from Greenbow in reply dated 16 September 2022. Rossi Recycling submits that it has been wholly successful in the proceeding and the usual order for costs should follow (that is, that the plaintiff pay the defendant’s costs of and incidental to the proceeding, including reserved costs). However, it submits that those costs should be ordered on an indemnity basis and also seeks a non-party costs order against Paul. Greenbow accepts that it should pay Rossi Recycling’s costs, but the order should be for costs on the standard basis and there should not be a non-party costs order.
3In my view, the circumstances of Greenbow’s commencement and pursuit of the claim against Rossi Recycling do not justify any special order for costs, nor do they justify a non-party costs order against Paul. The orders I will make will therefore be that the plaintiff’s claim is dismissed and the plaintiff is to pay the defendant’s costs of and incidental to the proceeding up to and including 16 August 2022 (including reserved costs, but excluding any costs associated with the application for costs) on the standard basis, in default of agreement. My reasons are as follows.
Rossi Recycling’s submissions
4On the issue of costs on an indemnity basis, Mr Barber for Rossi Recycling submits that:
(a) the proceeding was commenced and prosecuted for the purpose of improving Paul’s strategic advantage in the increasingly bitter dispute with Glen, and to provide him with leverage in resisting any attempt to remove him from control of the RP Trust’s Eastern Recycling business; and
(b) Paul’s evidence in respect of the reinstatement of the Greenbow UPE to Greenbow’s financial statements – an essential element of the factual foundation for the Plaintiff’s case – was “contrived and unconvincing”.
5Mr Barber noted that costs will be ordered on an indemnity basis where a proceeding has been commenced or continued for an ulterior motive,[2] and argued that:
“That is the case here, where the proceeding, brought by one corporate entity against another, was in reality a vehicle for an attempt by Paul Rossignoli to gain strategic advantage in a wider dispute between Paul Rossignoli and his son Glen. That is a motive that stands outside the bona fide recovery of a debt, and is not a proper motive for the bringing of a claim in this Court”.
[2]Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401; Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at [7]
6In relation to the non-party costs order against Paul, Mr Barber submits (and I agree) that the court has the necessary jurisdiction to make the order. He also submits that Rossi Recycling’s submissions are sufficient notice to Paul personally, but if objection is taken on that question, Rossi Recycling will address a summons to him. I accept that Paul probably does have sufficient notice of the application but, as I have determined that the application will be refused, it is not necessary to reach a concluded view on that issue.
7Mr Barber cites the leading authority on non-party costs orders and the four criteria established by that case, as follows (citations omitted):
“The jurisdiction to order a non-party to pay costs is exceptional but well-established. In Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-193, Mason CJ and Deane J recognised a general category of case in which an order for costs should be made against a non-party where:
(a) the party to the litigation is insolvent or a person of straw;
(b) the non-party has played an active part in the conduct of the litigation;
(c) the non-party has an interest in the subject matter of the litigation; and
(d) the interests of justice require that an order be made.”
8Mr Barber argues that each of these criteria is established. He begins by setting out the evidence referred to in my August Reasons concerning Greenbow’s financial position. There is some force in Mr Barber’s submissions that Greenbow is “a person of straw”. There is also little doubt that Paul played an active part in the proceeding and has an interest in its subject matter. On the interests of justice, Mr Barber submits that:
(a) Rossi Recycling has been brought to court against its will and forced to spend its own money defending an unmeritorious claim against it;
(b) the proceeding was brought for an ulterior motive (referring to his submissions on the indemnity costs issue);
(c) Greenbow is Paul’s alter ego and has been used entirely as a vehicle for his personal advantage so as to avoid personal liability on his part; and
(d) although failure to seek security for costs or to warn Paul that a non-party costs order might be sought against him are relevant matters, they are not significant factors against the making of a non-party costs in the circumstances of this case.
Greenbow’s reply submissions and analysis
9On the issue of indemnity costs, counsel for Greenbow Mr Farrands and Mr Kruse argue that conduct engaged in by a party as a litigant is to be distinguished from conduct of a litigant in the antecedent facts giving rise to a proceeding, citing Croft J in Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[3] They submit that, while I stated that Paul’s conduct might be fairly described as conduct involved sharp practice or involving an ulterior purpose, the conduct I was there referring to was clearly antecedent to the commencement of the proceeding. They also refer to my finding that the conduct did not reach the levels of the moral or legal depravity necessary to support the findings urged by the defendant.
[3] [2012] VSC 399 at [17]-[18]
10Counsel next argued that an order for indemnity costs is reserved for exceptional cases where the losing party has engaged as a litigant in unmeritorious or improper conduct. They submit that there was nothing unmeritorious or improper in the plaintiff’s running of the case because:
(a) it was not in dispute that the Greenbow UPE validly arose and was owing by the defendant to the plaintiff in the period leading up to the financial year ending 30 June 2013;
(b) an issue at trial was whether there had been a release of the Greenbow UPE given Ms May’s misunderstanding of the law and her consequential removal of the UPE from Greenbow’s financial statements;
(c) Ms Crennan’s evidence tended to support a finding that (absent Ms May’s misunderstanding) Greenbow was established to be the “bucket” for the allocation of profits across the Rossi Group and there was no intention to “close” Greenbow;
(d) Greenbow adduced expert accounting evidence supporting its case that the Greenbow UPE had not been released, and Rossi Recycling’s expert gave evidence that the Greenbow UPE had been assigned rather than released;
(e) Paul gave evidence that he considered the Greenbow UPE continued to exist as at 2018;
(f) I rejected that evidence, finding that Paul did intend for the UPE to be released, but that the intention was poorly executed and the reasons for doing so were based on a flawed understanding of the law; and
(g) I also rejected Paul’s evidence that he was motivated in 2018 to investigate the accounts and reinstate the Greenbow UPE because of the Family Court dispute with his ex-wife, and found that Paul’s likely motivation was instead to gain leverage in his dispute with Glen.
11Against that background, Greenbow’s counsel argue that the proceeding itself was not commenced and prosecuted for an improper purpose. They say that although I found a likely motivation for Paul investigating the accounts and seeking to reinstate the Greenbow UPE after discovering the mistake was to gain a strategic advantage, it does not follow that Paul caused the plaintiff to commence the proceeding for an improper purpose. I agree. Objectively, Greenbow’s arguments that the Greenbow UPE had not been effectively released clearly had legal merit. As my August Reasons show, the law relating to the discharge and release of UPEs is complex and uncertain.
12On the factual basis for the claims, they ultimately relied heavily on the evidence of Ms May. That evidence was confusing and uncertain (and thus unreliable) in a way that could not reasonably have been predicted in the discussions with Greenbow’s legal advisers that no doubt preceded her evidence in court. As Greenbow’s counsel submitted, there was evidence from Paul and from Ms May in support of the claim that the UPE had not been released. It was just that I rejected that evidence.
13In my view, Greenbow took a chance on pursuing a claim as part of a broader dispute with Glen, probably hoping that doing so would advance Paul’s interests in that broader dispute. That is an unfortunate but not uncommon feature of much of the litigation in the Commercial Division of this court. In my view, that claim had a proper basis, but it failed. I agree with counsel for Greenbow that the proceeding does not fall within the asserted category for which indemnity costs should be awarded and a costs order on the standard basis is appropriate.
14Turning to the question of a non-party costs order against Paul, Mr Farrands and Mr Kruse argue that there is no exceptional basis to make a personal costs order, for two reasons:
(a) Greenbow is not insolvent or a person of straw, and it is the real party to the proceeding; and
(b) it is not in the interests of justice to make such an order in circumstances where Rossi Recycling did not seek an order for security for costs and failed to give any warning to Paul of the risk of an order for non-party costs.
15I have noted above that there is some force in Mr Barber’s submission that Greenbow is a “person of straw”. The evidence discussed in my August Reasons was to the effect that Greenbow has never traded and its only assets comprised UPEs which were probably not recoverable.
16However, I agree with Greenbow’s counsel that the four criteria stated in Knight v FP Special Assets Ltd[4] are interactive and must take into account commercial reality.[5] Factors (b) and (c) in the extract in [7] above, do not confer a general discretion to order payment of costs by directors of any company which commences an action. The factors, together, must show that the non-party is the real party to the proceeding.
[4] (1992) 174 CLR 178
[5]FMP Constructions Pty Ltd v Council of the City of the Blue Mountains [2005] NSWCA 340 at [14] and [203]-[209] per Basten JA
17In any event, I am satisfied that Greenbow was the real party to the proceeding. The Greenbow UPE was validly owing to Greenbow and released, essentially because of a misunderstanding of the law. Greenbow was not set up or used as a stalking horse to conduct the proceeding. It was the proper party to seek to reinstate and demand payment of the UPE, and the benefit of reinstatement would have flowed to Greenbow. The fact that Paul is the director and shareholder of Greenbow is merely an incident of the way in which the Rossi Group evolved and was operated by its founder Paul.
18On the interests of justice, I repeat my findings above in relation to the circumstances of the commencement and prosecution of the proceeding. Further, I agree with Greenbow’s counsel that a non-party costs order is an exceptional course, and is not available merely because a corporate litigant of relatively limited resources has failed. The successful party must show that it has taken steps to protect its interests before seeking a non-party costs order, which is a last resort. In Knight v FP Special Assets Ltd,[6] Mason CJ and Deane J observed:
“The availability of an order for security for costs at an early stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party …”
[6] (1992) 174 CLR 178 at 191
19I am satisfied that it is not in the interests of justice for Rossi Recycling to pierce the corporate veil, and recover an order against Paul at this juncture, when no such earlier steps were taken.
20On the question of the costs associated with the submissions on costs and this ruling, I accept that I did make findings that were critical of Paul’s evidence and his motivations in pursuing the proceeding. While, as I have stated, these ultimately did not justify the costs orders sought by Rossi Recycling, it was reasonable for it to have advanced the arguments in support of such orders, in a proceeding in which it has otherwise been wholly successful. In other circumstances, this might have been done immediately after delivery of my reasons and been absorbed in the costs orders made in the proceeding generally.
21In the circumstances, I consider that the appropriate order is that there be no order for costs in relation to the parties’ costs submissions, or otherwise in relation to the delivery of this ruling.
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Certificate
I certify that these 8 pages are a true copy of the ruling of His Honour Judge Woodward delivered on 13 October 2022.
Dated: 13 October 2022
Claire Findlay
Associate to His Honour Judge Woodward
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